Liquidation Expenses and Floating Charges - The Separate Funds Fallacy


Riz Mokal


In the context of the decision by the House of Lords in Buchler v. Talbot, and of the Government’s resolve legislatively to overturn that decision, this paper considers the nature of the charge and the mortgage, and asks what effect the creation of such security interests has on the property of the company. It argues that their Lordships appear to have displayed a misunderstanding of the nature of the charge, and might have created significant doctrinal confusion in the process. The paper then provides empirical evidence to suggest that floating charges are not usually taken in order to ensure priority for their holder, and explains their true purpose. It also examines the broader role of liquidation proceedings. It concludes that not to require the floating charge holder to pay for these proceedings allows him to take the benefits of these proceedings at the expense of other creditors.


Bankruptcy Law | Property Law and Real Estate | Secured Transactions

Date of this Version

May 2006